Dollar Tree (DLTR, Financial) experienced a significant drop today, following its Q4 (January) earnings release. The company fell short on earnings per share (EPS) expectations, though revenue met predictions. The outlook for Q1 (April) reveals a similar pattern, with lower than expected EPS but revenue forecasts on target. Surprisingly, full-year guidance for both EPS and revenue aligns with expectations, indicating potential challenges in the first half of the year but a steadier second half.
During the earnings call, Dollar Tree clarified that Q4 adjusted EPS included unexpected costs of $0.17 per share, mainly from actuarial insurance adjustments. Excluding these costs, Q4 performance surpassed expectations, and adjusted operating margin grew by 70 basis points to 8.7%. However, the company anticipates that shrinkage and product mix will pose challenges in the first half of 2024, as reflected in the lower Q1 EPS guidance.
Key points from the earnings report include:
- Enterprise same-store sales grew by 3.0%, driven by a 4.6% increase in customer traffic but offset by a 1.5% decrease in average ticket size.
- Dollar Tree segment performed well with a 6.3% increase in comps, while Family Dollar struggled with a 1.2% decrease.
- Dollar Tree's strategy to attract higher-income customers and expand its multi-price point offerings has been successful, adding 3 million new customers in 2023.
- Family Dollar faces challenges due to inflation and reduced government benefits, leading to a significant drop in discretionary comps and plans to close approximately 600 stores in the first half of 2024.
The disappointing Q1 EPS guidance and ongoing issues at Family Dollar have negatively impacted Dollar Tree's stock. This downturn is particularly concerning given the positive performance of other value-oriented retailers like Walmart (WMT, Financial), Target (TGT, Financial), TJX Companies (TJX, Financial), Burlington Stores (BURL, Financial), and Ross Stores (ROST, Financial). The situation at Dollar Tree raises concerns for Five Below (FIVE, Financial), which is set to report earnings next week, and for its dollar store counterpart, Dollar General (DG, Financial), reporting tomorrow.
